Steven Madden Ltd (SHOO) 2005 Q3 法說會逐字稿

Welcome to the Steve Madden conference call sponsored by Financial Dynamics. [OPERATOR INSTRUCTIONS] As a reminder, ladies and gentlemen, this conference is being recorded.

I would now like to turn your call over to your host miss Cara O'Brien of Financial Dynamics.

Please go ahead.

Thank you, operator.

Good morning everyone and thank you for joining this discussion of Steven Madden, Ltd.'s third quarter results.

By now you should have received a copy of the press release, but if you have not, please call our offices at 212-850-5600 and we will send one out to you immediately.

Before we begin, I would like to remind you that statements in this call that are not statements of historical or current fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Such forward-looking statements involve known and unknown risks, uncertainties, and other unknown factors that could cause the actual results of the Company to be materially different from -- with the historical results or from any future results expressed or implied by such forward-looking statements.

The statements contained herein are also subject generally to other risks and uncertainties that are described from time to time in the Company's reports and registration statements filed with the SEC.

Also please refer to the earnings release for more information on risk factors that could cause results to differ.

Finally, please note that any forward-looking statements used in this call should not be relied upon as current after today's date.

I would like to turn the call over to Jamie Carson, Chairman and Chief Executive Officer of Steven Madden, Ltd.

Jamie, please go ahead.

Thanks, Cara.

Good morning.

And thank you for joining us to review Steven Madden, Ltd.'s results for the third quarter ended September 30, 2005.

With me to discuss the business Awadhesh Sinha, our Chief Operating Officer;

Arvind Dharia, our Chief Financial Officer;

And Ed Rosenfeld who recently joined us from Peter J. Soloman Company as Vice President of Strategic Planning and Finance.

I will begin by providing a brief overview of several different items that we announced this morning and will then review the financial results in detail.

Following my formal remarks, we will be available to answer any questions you may have.

We have continued to make meaningful progress in our efforts to grow the business and improve profitability.

Strong top line growth coupled with significant operating margin improvements contributed to earnings per share for the third quarter of $0.39 compared to $0.26 last year, an increase of over 50%.

This morning, we also announced a $1 per share one-time special dividend.

The dividend will be paid to shareholders of record on November 14, 2005, and will be distributed on November 23, 2005.

Combined with 7.7 million of share repurchases we have completed so far this year, this will bring our total capital return to shareholders in 2005 to approximately 21.4 million.

In addition, over roughly the next 15 month period we will at a minimum return an additional 15 million in capital to shareholders in the form of share repurchases or dividends' we believe this highlights the strength of our operations and the fact that we are keenly focused on delivering enhanced value to our shareholders.

That said, however, we are confident that we have appropriate levels of cash to continue to fund our growth strategies.

Finally, we also announced this morning that Richard Olicker will leave the Company to pursue other interests in conjunction with the expiration of his employment agreement on December 31, 2005.

We are extremely grateful to Richard for his hard work and dedication to Steven Madden, Ltd.

During his five years of service to the Company Richard helped guide the business through many industry challenges and a variety of transitions in the business.

He made significant contributions to the successes of today and we thank him for his many accomplishments and wish him great success in his future endeavors.

We will begin a search for a new President immediately, however.

We will be methodical in our process to ensure that we find the right person.

We are fortunate in that with recent hires and promotions we have a senior management team that is both broad and deep and is capable of performing the necessary management tasks.

Specifically our recently appointed Chief Operating Officer, Awadhesh Sinha will be responsible for operations across the Company's various divisions and for generating additional efficiencies and enhancements to the business model.

Additionally, Amelia Newton, recently named Executive Vice President of wholesale sales will continue to be responsible for managing the Company's wholesale customer base as well as overseeing key accounts to improved profitability.

Now, let's turn to a more detailed review of the quarter.

Consolidated net sales increased 12.9% to 100.1 million from 88.6 million in the third quarter last year.

This reflects increases in the retail division, Steven Madden women's, Steven Madden men's, Candie's and l.e.i.

The companies Adesso-Madden division recorded a 147.1% increase in income, net of expenses reflected as other income on the income statement.

Gross margin for the quarter increased 70 basis points to 36.2%.

The Company's wholesale division which represents approximately two-thirds of the business drove this improvement with a 170 basis point increase in gross margin reflecting gross margin increases in every wholesale division with the exception of Steven.

This was partially offset by a 340 basis point decline in gross margin in the retail division which was primarily a result of the liquidation of inventory, one permanent and three temporary outlet stores that were closed within the quarter as well as the clearance of slow moving inventory throughout all of our stores.

SG&A expenses as a percentage of sales decreased 80 basis points compared to last year and operating profit increased 53.4% to 9 million from 5.9 million last year.

Taking all of this together, we achieved a 49.6% increase in net income to 5.5 million versus 3.7 million last year.

Diluted earnings per share increased 51.4% to $0.39 per share on 14,045,000 diluted weighted shares outstanding compared to $0.26 per share on 14,220,000 diluted weighted average shares outstanding in the comparable period in 2004.

Now let's review the performance of each of our divisions.

Net sales for the wholesale division increased 9.5% to 71 million from 64.9 million in the comparable period a year ago.

This division was comprised of six segments in the quarter.

Steve Madden women's, Steven Madden men's, Steven by Steve Madden, Stevies, l.e.i and Candie's.

Wholesale now excludes our Unionbay segment which has been transitioned to a commission based first cost model and so will be reported as part of Adesso-Madden going forward.

Net sales of the Steve Madden women's wholesale division increased 1.5% to 33 million versus 32.5 million last year.

Notably, this increase was achieved while inventories at quarter end decreased 28% compared to last year.

The highlight of the quarter was western boots as we reaped the benefit of being on this trend early.

We were quick to market with a key item and then followed it up with western influenced boots with different treatments, heel heights, and toe characters.

Brown was the dominant color in the quarter, in addition to western, city sandals were also strong and metallic treatments performed well across all categories.

Steve Madden men's continued to be a strong performer with net sales of 15.1 million, 105.5% increase over last years 7.3 million.

The sales gain reflects an increase in volume at Journey's as well as distribution to more doors at Dillards and Nordstrom.

In addition, we expanded our assortment with a number of our department store customers reconfirming our commitment to being a collection brand with a full assortment of dress, casual, and sport footwear.

We were particularly pleased by the strong performance in the quarter of our mocs and dress shoes which was achieved while maintaining our strong position in sport casuals.

Gross margin in the men's division was 36.4%, a 390 basis point increase over last year's third quarter.

Net sales in the Steven by Steve Madden division were 3.7 million versus 6.8 million in the third quarter last year.

Third quarter was impacted by significantly higher markdowns required to clear spring inventories.

Additionally, because of last year's disappointing overall boot season, early initial boot placements were lower for Steven than last year.

A combination of fewer initial receipts and tighter inventory management reduced our opportunity for reorder sales in the quarter.

Despite lower wholesale sales, Steven enjoyed product successes at retail including western boots, shoes, and mules, jeweled sandals, and flats.

Net sales in our Stevies division were 2.9 million versus 3.2 million in the comparable period last year.

As discussed on last quarter's call we have reduced SG&A expenses in this division in response to the planned sales declines this year as a result of our moving to a cut to order model.

In addition, we are beginning to service some of our customers on a commission base first cost model in which we do not take ownership or possession of the inventory.

As it is, the cut to order inventory model we implemented at Stevies earlier this year resulted in an inventory decline of 63% versus year ago levels.

Net sales in the Candie's division were $6.7 million, a 25.1% increase over the $5.4 million recorded in last year's third quarter.

We continue to be pleased with the Candie's performance at Kohl's.

Strong performing categories in the quarter included sandals with embellished heels and embellished flats.

Gross margin was also up at 38.9% compared to 27.6% in the year ago period.

As we have discussed, Candie's is also on the cut to order model and as a result inventory at the quarter end was down 82% versus last year. l.e.i. net sales were up 3.1% in the quarter from 9.4 million in the third quarter last year to 9.7 million this year due to better sellthroughs at retail.

Again, western was a significant driver of growth.

Moving on to our retail division, third quarter sales increased 22.3% to 29.1 million from 23.8 million last year.

This sales gain included a 12.3% increase in comp store sales.

As of September 30, we had 98 stores in operation including our internet store.

During the quarter, we opened four new stores and closed one permanent outlet store.

We also closed three temporary outlets which were not included in our store count because they were temporary locations without fixed term leases.

For the 12 months ended September 30, 2005, stores opened for the full 12 months generated $752 in sales per-square-foot.

As I mentioned earlier, the retail division gross margin declined 340 basis points primarily as a result of the liquidation of inventory at those three outlet stores which were closed within the quarter as well as the clearance of slow moving inventory throughout the chain.

Inventory for the retail division ended the quarter down 19% from the end of the third quarter in 2004.

Moving to our other income, the Company's commission in licensing fee income line increased 88.7% to 2.2 million this year from 1.2 million last year.

Our Adesso-Madden division included division income net of expenses of 1.6 million in the quarter, compared to 700,000 in the comparable period.

As I mentioned earlier, these figures now include the revenue and expenses of our Unionbay segment which we have transitioned to a commission based first cost model with no inventory risk.

Commission income increased for women's, men's and children's product domestically and we also recorded increased revenue from our international distribution and retail arrangements.

We continue to view international expansion at an important opportunity for the Company.

During the third quarter, we signed agreements with partners for wholesale distribution in the operation of retail stores in Israel as well as the operation of retail stores in the United Arab Emirates.

For the year we have signed five new agreements with international partners including a wholesale distribution agreement in Mexico and retail agreements for Canada and Australia.

We were optimistic that over time these arrangements will increase our bottom line and broaden the global awareness of the brand.

Licensing income was 568,000 in the quarter, up 11.6% from third quarter last year.

As we mentioned on the last call, we have begun investing in key personnel in the licensed area including the recent addition of a fashion director who will work with existing and new licensees to ensure that all Steve Madden products embody a consistent brand image and spirit.

With this important piece of the infrastructure in place, we believe we are well positioned to capitalize on the tremendous opportunity to leverage our brand into other categories through licensing agreements.

Turning to marketing, it was a strong quarter for brand visibility and reinforcement.

In August we were a sponsor of the Stuff magazine party at the MTV video music awards in Miami and received press coverage in both Us Weekly and The Daily News.

Other highlights including an appearance and performance by musician and actor Tyler Hilton of One Tree Hill at the Roosevelt Field mall store as well as an appearance by the Pussycat Dolls, singer of the hit song "don't you" in our Dallas Galleria store.

It was also a particularly active quarter for editorial placements in magazines with product placements in In Style, Us Weekly, Lucky,Teen People, Cosmo, Marie Clare, 17, and The Source, among others.

With respect to our overall financial condition, we have maintained a pristine balance sheet with no debt and 99.6 million in cash, cash equivalents and marketable securities.

Despite our increase in the top line, we reduced inventories in every division of the Company except men's which increased inventory to support our open stock programs and a substantial increase in sales.

Total inventory at the end of the quarter was 22.7 million, a 25.6% decrease versus inventory of 30.4 million at the end of third quarter in 2004.

And our inventory turn for the 12 months ended September 30, was eight times.

Accounts receivable and due from factor were 48.5 million compared to 48.6 million a year ago.

Reflecting a decrease in our collection days to 62 days from 67 days last year.

Capital expenditures were $ 1.4 million for the quarter, down 2.1 million last year due to fewer store openings.

Stockholders equity as of the end of the quarter was 180.3 million.

In summary, we are very pleased with our third quarter results.

Looking to the balance of the year, we currently anticipate annual net sales will increase in the low double digits over 2004 based on strong year to date performance across many of the divisions and what we expect for the remainder of the year.

This together with continued improvements in gross margin means that we currently anticipate full year earnings between a $1.20 and $1.22 per diluted share.

We are pleased with the progress we have made so far this year and look forward to continuing to strengthen the business.

As we move forward, we will maintain our focus on improving gross margin, leveraging our cost structure and growing sales responsibly and profitably.

While the Steve Madden brand is on fire today, we will continue building the brand into a global lifestyle brand and we'll continue to pursue growth initiatives including growing our retail store base, expanding into complementary categories, extending our international reach, and potentially pursuing acquisitions.

Thank you for your time and interest and now we will be happy to answer any of your questions.

Thank you. [OPERATOR INSTRUCTIONS] Your first question is coming from Scott Krasik of CL King.

Good quarter.

Thanks, Scott.

Can you give us some sense of what this spring looks like?

Obviously you had a lot of the momentum last spring and summer.

Does that translate into better initial wholesale fill-in?

Or because of your model does it just mean that there will be more open to buy dollars when and if you need them.

Does this change the model because the brand is in demand?

Well, let me just say that today we have a wider range of age demographic than ever before.

And as a result we also have a wider selection of product.

Several classifications are working for us currently.

Western was fantastic.

We had great success with dress shoes which allows us to vary the heel heights and have a greater life for that product.

So going forward into spring, we believe a lot of the trends will continue based on the reaction that we are getting today.

So -- but in terms of actually getting more in terms of preorders, has backlog become more important to you or is it more late deliveries and open to buy?

How does that play out?

Well, as we go forward into the balance of the year and into '06, we will be in a position better to put our plans together and be in a better position to answer.

But right now since a lot of the trends are continuing into spring, we feel that backlog is important.

Also, if I can add something, we mentioned before that we are moving to our cut to order business, and that will help us to maintain our backlog orders to a minimum.

Okay.

Then can you also -- Awadhesh, could you just expand a little bit in terms of gross margins are showing growth in the right direction.

But can you talk about what the opportunities are for you guys in gross margin over the next say 12 months and how you get there.

First of all the next 12 months we are still working on.

Sometimes during next call we can give you a better guideline.

However, our -- at this point all the initiatives to grow gross margin is in place.

We are trying to control our inventory better than before.

We are analyzing the sales trend and using them to purchase our inventory.

We are looking at excess and slow moving inventory earlier and closing them out which will cut down markdown losses.

And all these will improve gross margin going forward.

Okay.

And so you think that this is a 12 month, 24 month -- should this be ongoing for awhile?

Is this just low hanging fruit to capture?

No.

We believe that we will see the growth and the fruit starting first quarter next year.

Okay.

And then just, Jamie, are you going to have the benefits from Daniel Friedman in the stores now are they?

When do those get to ship?

The idea is to launch for spring.

We are working on getting accessories into our stores.

We will not put them in the stores until we are completely satisfied.

But the idea is we will be launching for spring and we should have spring product in our stores relatively shortly.

Thanks.

Thank you.

Your next question is coming from Vera Van Ert of Wedbush Morgan.

Hi, nice job on the quarter, I have several questions.

If you could just firstly elaborate on the some of the slow moving inventory related to your retail division, just what that was comprised of and kind of your expectations on the retail gross margin on a go-forward basis number one.

Number two, if you could just maybe talk about some of your initiatives for 2006 and beyond in terms of the Steven Madden Lux line and then the apparel piece for 2007 and then just a housekeeping item.

Stock option expense for 2006.

Thanks very much.

There were several questions there.

The first question, let me just respond.

The successes in retail to look at it another way, the successes in retail were fashion western, pumps, and flats.

Those were successful.

In fact, western boots were a home run.

It was a large percentage of the comp gain.

What was your next question?

In terms of the Lux line that I think is going to, you said ship for spring 2006 that was discussed in an interview in footwear news and then the apparel initiative for 2007?

Well, Lux is a very exciting concept for us where it's just in the formative stages.

It's a concept that's going to be in the A-plus and A doors of Federated and Nordstrom and high end specialty stores.

The price points are going to be higher than Steve Madden.

The price points are going to be for shoes say between 125 and 175.

For boots say, they could be from 200 to 400.

But again it's just in the concept in the formative stages.

As we get into '06 we'll be able to better plan and give you more detail.

I'm sorry, is that product, the Lux product going to ship for spring?

Yes.

And then the apparel initiative for '07 that was discussed in the article as well.

Right.

We are working on that feverishly.

As I mentioned on the call, we have a hired a fashion director who is going to help us with our licensing.

We are building our infrastructure first to accommodate a significant, significant business opportunity in apparel.

It is something that we have to get our own ducks in order which we are working on.

At the same time as that, we are also meeting with several potential parties and trying to find the right partner.

It's hard.

You have to have somebody who understands the division as you do.

Understands the brand and is willing to invest in the business to build the brand.

All of that we are working on.

Great.

And then actually if I could just slip in another question related to the men's growth.

You mentioned some additional doors both at Dillards and Nordstrom.

Is there additional growth opportunity in doors left at those two chains from -- on the men's side?

Yes, we believe so.

Great.

And then just stock option expense for 2006?

What your expectation is, the impact?

There is no more data impact on our 2006.

I'm sorry?

There is no more data impact in our 2006 for stock option expense.

Thank you very much.

Thank you.

Your next question is coming from Jeff Van Sinderen of B. Reilly and Company.

I take it Richard is still there until the year end; is that right?

Yes.

And I wonder if you could give us a break down of operating margins by segment as you did last quarter.

Sure.

Yes.

Okay, the gross margin for the whole company was 41.3% versus 40. -- I'm sorry.

Yes, 41.3% versus 32.2 last year.

In terms of wholesale, the gross margin was 34% -- no, no.

This is fourth quarter.

Sorry.

Okay, you want operating income by division.

For Madden.

Do you want me to do it?

No, I'll do that.

The third quarter operating income percentage was 9% for the whole company versus 6.6% last year.

The wholesale was 9.7% versus 7% last year, so still Madden woman's was 8.3 versus 8.2.

Men's 17% versus 1.9. l.e. i. 6.1 versus 3.8.

Candie's 17.2 versus 2.3.

Steven there was a loss of 15% versus 14% gain year before.

Stevies 15.6 versus 12.1.

And the retail stores 1.5% versus 2.9 last year.

Okay.

And then as far as the retail business goes, I understand you closed some temporary outlet stores, if you will.

Just wondering if we were to look at that X those door closures and sort os X extraordinary items where we would have been in terms of gross margins.

I would think that might have been a metric you guys would have looked at, any?

Yes, the impact of the loss of margin was approximately 2.5% on an annual basis.

A loss of 2.5.

That's on an annual basis?

In other words it was about $2.5 million. 2.5 to $3 million.

For the quarter?

Yes, it was for the quarter, but an annualized basis.

I see what you are saying.

All right.

And then I guess anything to point out in terms of trends, product-wise where you think you will be strong for holiday?

Or is it just a continuation of what was strong for fall?

Think we have a continuation of into holiday of western, pumps, dress pumps, pointy toe dress pumps are going to do -- are doing very well.

We have pointy toes on kitten heels that are doing very well.

And we see that moving forward into holiday.

Okay.

And did you guys repurchase any shares during the quarter?

No.

And then I wonder if you can talk a little bit more on the Steven division.

I didn't -- I caught some of your comments there, but maybe you can give us a little more insight or elaborate a little more on that?

Sure.

As I said earlier, Jeff, the early initial boot placements were lower for Steven this year because we had a disappointing boot season last year.

And as a result our reorder business didn't materialize.

Also Steven's version of wood clogs, casual mocs were quite disappointing.

We experienced significantly higher mark downs so that we could clear spring inventories.

But also we made some changes in the division as well.

Notably changes in management.

And as we go forward, we are optimistic that those changes will bear fruit.

Okay.

And so should we look for that division to improve, do you think, in Q4?

Or is that early?

Are we kind of looking towards spring for that?

I think it's going to be a slow process.

Again, our focus here is going to be on improving margin, not top line.

Okay.

And then finally on the apparel front, I understand you are working on some initiatives there.

Should we think that apparel is going to be an internal organization or that you would be doing something significant in terms of licensing for apparel?

Well, we've always said that -- and you've heard this before, that we are looking for the right partner.

And it may take the form of an acquisition or a license.

As we stand today, as a management group, we like the licensed scenario.

We don't want to take the inventory risk.

And we are gearing ourselves in that way.

But it could conceivably be either.

Fair enough.

Good luck this quarter.

Thank you.

Thank you.

Your next question is coming from Sam Poser, Mosaic Research.

Good morning.

With ---how is the initial reaction to the SM New York brand going and what is the plans with the l.e.i. license?

Okay.

Sam, as you know, we launched SM in August.

So far we are very satisfied with the response.

But it's brand-new for us and we are developing our plans now.

We will be better able to discuss it with you in detail as we move into the beginning of '06.

Our information will be more accurate.

But so far we are pleased to what we see.

What was your other question?

On the l.e.i., on what the status--?

Yes, the license reverts back to Jones on September 30, 2006.

We are going to run the business in accordance with the terms of the license.

And when it goes back, it goes back.

And then you talked about the question -- you spoke about your cut to order product and there were some questions asked about the outlook for spring.

With more cut to order, especially out of China, I would assume that you have a -- you are seeing some of those orders in-house now with those brands.

How is that outlook?

The trend at this point is satisfactory.

We are ahead of the last year order points.

So we are satisfied with the trend so far.

Can you give us an idea how far ahead of last year you are?

The season is not over so it's difficult to answer that.

And then the Lux brand is the Steven Madden signature product, correct?

The Bloomingdales product we would have seen at the show?

Yes, signature is at Bloomingdales.

And Lux is every place else that I mentioned.

The A-plus and A-doors of Federated and Nordstrom.

So is that going to evolve separately or is it all going to be consolidated as you see right now?

As we see it right now signature is going to be at Bloomingdales.

Lux is going to be in the places I've described.

And currently there are no plans to consolidate.

Great.

Thank you.

Congratulations on a good quarter.

Thank you.

Thank you.

Your next question is coming from Rob Longnecker of Barrington.

Hi, guys, really nice quarter.

It's impressive to see a lot of your initiatives kind of having an impact here.

Two quick questions.

One is can you just -- I might have missed this, can you just tell me what the inventory was in each segment both the general ask please?

Yes, sure.

First of all, the total inventory was 22.6 million versus 30.4.

Now the breakdown still Madden women's 5 million this year versus 6.9 million last year.

You can just give me, actually, I'm sorry, go ahead. 5 versus what?

Five versus 6.9.

Steven 1.1 versus 2.9. l.e.i. 1 million versus 2.7.

Stevies 200 versus 600.

Men's, 3 million versus 1.8.

Candie's, 400 versus 2.2.

And the retail 11.7 versus 14.5.

Great.

And could you also just -- have you guys seen any impact either negative or positive from the Federated-May merger?

Well, we feel pretty good about our position in the combined Federated-May.

I have to say.

As you probably know, as you do know, Federated has announced that it's going to be investing in brands which draw customers to the stores and that are able to turn merchandise quickly and we feel that plays right into our strengths.

Obviously we're going to lose some real estate, but overall we view it as a net positive.

Okay.

Great.

Thanks a lot.

Again, great quarter.

Thank you.

Thank you.

Your next question is coming from Heather Boskin of Sidoti and Company.

Quick question first, spending this year for repurchases and dividends of 24 -- 21.4 million, that's opposed to the original 25 planned.

It's in the agreement that's okay to roll that over into '06?

Well, actually the agreement as we filed the agreement I think the commitment is through January 31.

Okay that explains that.

Secondly, the SM New York brand, when is that really going to ramp up in terms of when will we start to see some significant volume shipping there?

I just want to go back to your first question one second.

I just want you to -- I want to get you out there, I mean, it's important to know that our job is to enhance shareholder value.

That's with a we want to do.

And the commitment to spend that amount of money as I said on the call is what we will do at a minimum.

So the date -- January 31, becomes less important than our commitment to enhance shareholder value over the long term.

As to your second question, it was launched in August for spring.

You will start to see spring deliveries and hitting the department stores the end of this year and beginning of next year.

Is there any estimate in terms of doors for that yet?

We are putting our plans together now.

As I said before, Heather, as we get into next year and we gain more information, we will be more accurate with our planning.

Okay.

Lastly, somebody asked and you said so far looking for no material impact in '06 from options expensing, just looking back historically, it comes out to about $0.22 a share in '04, I know you are working to bring that down.

But that's a pretty significant drop.

Can you explain what initiatives -- what you are doing in terms of compensation that brings that down to zero in '06?

Okay.

Well, the -- our long-term goal is to find a way to compensate people and incent them and align their interest with that of our shareholders.

And at the same time, reduce the hit that we have to take.

We are working on something in that regard.

It's too early to discuss.

But again on the next call I think we will have something to be meaningfully discussed.

But at this point in time you aren't looking for any options impact in '06?

Correct.

Minimal.

Well, thanks, guys.

Thank you.

Your next question is coming from Susan Sansbury of Miller Tabak.

Hi, it's Susan Sansbury at Miller Tabak.

Could you restate the retail inventory.

I missed it because multiple people were speaking.

Okay.

At the end of September '05, it was 11.7 million.

Last year it was 14.5.

Great.

Thanks very much.

On the acquisition, since you may make an acquisition and your goal is to enhance shareholder value, can you broadly describe what your acquisition criteria might be in terms of size and product -- well, you don't have to address product category necessarily, but what the goal of the acquisition program might be?

Yes, let me paint it with a little bit of a broader brush than that.

We are looking -- we would always look to partner up whether it takes the form of an acquisition or a license with anything that -- with the category, in the categories that we think will enhance and build our Steve Madden brand.

As I said earlier, into a global lifestyle brand.

That's first and foremost.

Today, the brand is hotter than ever.

We would only look for partners that share the vision to build the brand into what we want it to be.

As far as the categories, clearly apparel represents a step for us to take in the future.

We have done bags in the form of a license.

And we could conceivably look at the range of possibilities.

Anything that would build our Steve Madden brand.

But why would you bother to take this in-house when you could instead through a licensing agreement or a franchising agreement with global partners significantly enhance your royalty income stream?

Well, certainly we will evaluate any acquisition very carefully for that reason.

And as you point out, a licensing deal represents a lower financial risk to us, but there is also lower potential reward.

And we will continue to look at acquisitions very selectively and only ones which will be accretive to EPS and we'll provide attractive return for our shareholders.

I like the accretive comment.

What about the aggregate side.

You have no debt on the balance sheet.

Can you discuss at this point, and I understand it's early, how much you would be willing to lever this company and/or are you willing to lever at all?

I think it's too early to discuss it.

If we had an acquisition on the table it would be easier to analyze that in view of our business going forward.

Great.

I appreciate it.

Thanks very much.

Thank you. [OPERATOR INSTRUCTIONS] Your next question is coming from Randy Scherago of First Albany Capitol.

Hi, guys.

Quick question on Candie's, the rollout has been really good with the Kohl's stores and the margins are pretty -- were pretty excellent in the third quarter.

Can you sort of give us expectations for what you think their outlook is for the fourth quarter possible expansions of the shoe line in '06 and sort of expectations for next year for that brand?

Well, it's kind of hard to answer your question now.

As I said to you earlier, Randy, we are putting our plans together and as we move into '06 again, the information that we give you will be more accurate.

Having said that, we've had great success with embellished shoes, bling-type shoes, sandals with embellished heels, and embellished flats were strong.

And we think that those types of footwear have longevity and will roll into spring nicely.

What kind of SKU count do you have?

Or how many styles are you actually have in Candie's today?

Will have to get back to you on that.

Okay.

Your next question is a follow-up coming from Scott Krasik of CL King.

Hey, guys.

Two questions.

Just on the follow-up on Candie's because it's a cut to order model, is there opportunity for reorders as we get closer to Christmas, let's say, in the next three or four weeks or basically what you sold in?

Is it a big third quarter business and then a smaller fourth quarter business because of the cut to order?

Well, the secret of our success is the lead time.

Our lead time, in other words the number of days which we require to produce our product is lot less than other companies.

Therefore, yes, there are opportunities and we can take advantage of that.

Even on a China based brand like Candie's not just Steve Madden women that you'd make in Florida if you had to.

That is correct but we were also looking into diversifying our sourcing strategies around the world.

And as we go forward we will accomplish that also.

Okay.

And then Jamie, just conceptually, what are you looking for in a new President?

Richard was unique because he had the fashion and footwear side down and also the business side.

Are you looking for somebody that combines both?

Do you feel comfortable on the creative side.

And you are looking more on the business side?

What are you trying to go for?

First of all, Richard was a great partner.

And he -- we thank him for all of his work and his contributions to our company.

We are beginning a search immediately.

We are going to do it methodically.

The qualities that we would look for in a new President, Scott, it would have to be somebody who's an effective communicator.

Somebody who can be a person of action who can work effectively with both sides of the business, the creative side and the business side, very important to be able to do that.

Someone who can help us deliver on our promise to grow the business and enhance profits.

Okay.

So really it's -- you're looking for somebody that has both the fashion, creative, and the business side?

Correct.

Okay, thanks.

Thank you, your next question is coming from Adam Comra of Entrust Capital.

First, I just wanted to follow that up by congratulating and thanking Richard Olicker for all of his hard work in helping effectuate a successful turnaround here.

You guys have mentioned a couple of times that you wanted to become a global lifestyle brand and there is no question the brand is as strong as it's ever been here in the U.S.

Can you talk a little bit about how we can really take this thing to the next level and effectuate an international growth plans?

Sure.

The first thing that we have to do is we have to make sure that what we are doing in our core competency remains at the level that it's been.

So we need to invest in product people in our company and other people in our company to make sure that our footwear business remains very strong.

Secondly, we need to branch out into other classifications like apparel.

We have done that with bags.

Thirdly, and we are working on this I think we mentioned it on the call, that we are developing relationships, partnerships if you will, with entities and what we deem to be good partners around the world to develop the Steve Madden brand.

That means opening up retail stores around the world.

That means distributing product through wholesale.

What we see going forward is -- we are not going to have a Steve Madden on every street corner by the way.

That's not our plan.

Our plan is to build the Steve Madden brand.

Keep it pristine.

But develop a retail and wholesale presence around the world in different classifications.

What kind of countries are we going to -- do you think we can make the initial push?

Well, clearly, Asia represents a tremendous opportunity and Europe presents a tremendous opportunity.

Those are the two biggest areas that we need to focus on.

And the other thing is we are all very excited about the apparel opportunity.

Are there any other lower hanging fruit-type of license opportunities?

Can we do some fragrances here in the short term?

Anything like that?

I'm glad you mentioned that Adam, I -- certainly fragrance is something that we would love to pursue and we will pursue that as well.

Perhaps and I say perhaps because we have to determine whether it compliments our brand.

We think it does.

Watches, for example, is something that we could conceivably do.

But fragrance and apparel are the two biggest.

All right, terrific.

And just congratulations to everybody all through the Company as well.

The last thing is more of a comment.

You guys have done such a good job on the working capital and generating cash.

We now have $7 a share cash on the balance sheet.

No debt.

I appreciate the effort of $1 special dividend, probably can do a little bit more.

Thank you.

Your last question is coming from Susan Sansbury of Miller Tabak.

Hi.

This is admittedly a silly question under Reg FD.

But your forecast -- EPS forecast for this year is $1.20 which is within the low end of the consensus range for next year.

Any -- and I assume -- we can assume that next year you are looking to generate higher sales on income.

And I know you don't want to talk about this right now.

But can you make any comment about the outlook for '06 either in reference to the consensus range out there or some sort of description of the elephant hints in terms of what you are thinking about?

Thanks very much.

Susan, I said this a couple of times.

The information that we would give you today would not be as accurate as the information we will be able to give you on the next call.

On the next call, we will provide our guidance for 2006.

Okay.

I tried.

Thanks.

Thank you.

There are no further questions.

Please continue with any closing comments.

Well, we will continue on our mission to enhance shareholder value and we look forward to speaking to you on the next call.

Thank you.

Ladies and gentlemen, that does conclude today's conference call for today.

You may all disconnect and have a wonderful day.